Connecticut's Economic Stall Calls For Real Sacrifice

In January, Connecticut lost 9,700 private sector jobs, according to the state Department of Labor. Just another statistic in the numbingly long list that has earned the state the nation's worst job creation record. A serious economic problem — which is not going away.

To review, the state created only about 76,000 private sector jobs from December 1990 to December 2007, before the crash. We lost about 112,000 jobs in the Great Recession, of which we had recovered about 80,000 by the end of last year, still 32,000 short of recovery after three years Gov. Dannel P. Malloy's watch. An abysmal record.

All very alarming, except for those who think that a no-growth model may work. After all, Connecticut's population barely grew from 1990 to present — from 3.3 million to 3.6 million.

During the same period, the state's economy only crawled forward. U.S. Bureau of Economic Analysis data converted to current dollars using the federal Bureau of Labor Statistics' Consumer Price Index Inflation Calculator show that Connecticut's real-dollar economy grew from $180 billion in 1990 to $250 billion in 2007, but by 2012 hadbacktracked to $235 billion.

The recent drop is worrisome (very), but maybe people think that Connecticut is just a small, slow-growth state, just steadily plodding along, and that's OK.

Well, here's why it isn't OK. Something else has been growing, and growing much faster.

Connecticut's state budget has grown enormously, again in inflation-adjusted dollars, from about $13 billion in fiscal year 1990 to about $20 billion in fiscal 2014 (on the gross accounting method, to be consistent with 1990; the state adopted the net accounting method in 2013 to squeeze under the constitutional spending cap).

There's no mystery how this mismatch — snail-slow growth in the private sector vs. robust growth in the public sector — has been finessed. In 1991, the state introduced an income tax — then three years ago, Gov. Malloy hit taxpayers with a big income tax increase. And the state has borrowed heavily. In 1996, the state's outstanding bonded debt was about $9 billion; today, it exceeds $20 billion.

So, the state's woes were long in the making. They have nothing to do with the Great Recession, as some claim, except that any weak entity recovers much more slowly from a severe body blow. Connecticut's lame recovery manifests just how weak the state is.

What to do? Well, it is inescapable that spending must be cut.

And the issue is urgent. The Office of Policy and Management, in its required Fiscal Accountability Report of last November, projected that the governor's own budget will lead to a deficit of $515 million in fiscal year starting July 1 of next year, and a combined deficit of $772 in the next two years.

There are no good options, so everything should be on the table, including reopening the State Employees Bargaining Agent Coalition agreement, which provides state employees some of the richest benefits among the 50 states.

To understand just how sweet the unions' deal is, just recall what their chief negotiator, Dan Livingston, said to state employees when, at first, they balked at ratifying the 2011 "shared sacrifices" agreement. First, he addressed retirement benefits: "Now we have an 11-year agreement … an 11-year pension and health care agreement … that no other state worker in the country has, and I'd venture to say no other private sector worker."

Second, he spoke about job security: "The agreement that you're reviewing has four years' job security. Nowhere else in the country will you find four years' job security."

Finally, he commented on pay: "Giving up the raise next year … and then getting three threes [3 percent annual wage increases] in a row … anybody who doesn't think that's a win, I don't know what to say. Arbitrators around the country are ordering four zeros in many cases."

So, in the state with the worst record of private job creation, state employees enjoy the best job security, current compensation and retirement benefits in the nation? Surely, there is lots of room for real sacrifice from these employees, not the fictional sacrifice that Gov. Malloy postured about in 2011.

Red Jahncke is president of The Townsend Group International, a business consulting firm in Greenwich. He can be reached at rtjahncke@gmail.com.

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